AFKI Commodities Report: Libyan Outage Supports Brent Crude Prices

Crude oil prices for the most part continued to hold up this week with North Sea Brent remaining above $60 a barrel while the U.S. benchmark West Texas Intermediate (WTI) rose above $52 a barrel on March 3.

Brent for April delivery on the London-based ICE Europe exchange settled at $60.96 a barrel on March 5, having climbed as high as $62.50 during trading on March 2. Front month Brent had ended last week at $62.58 a barrel.

April WTI on the New York Mercantile Exchange (Nymex), meanwhile, settled as high as $52.50 a barrel on March 3, having closed last week at $49.76. However, U.S. crude for April delivery finished 77 cents lower on the day March 5 after news of another big inventory build in the country. Nevertheless, at $50.76 a barrel, WTI remains above the psychologically important $50-a-barrel level.

Libya’s state-run oil National Oil Company closed 11 of its oil fields due to deteriorating security in the country, helping shore up Brent oil prices. The oil company’s statement on its website blamed attacks on its oil fields and oil ports for the supply outage by Islamic State militants and warned of danger to othe terminals and facilities. A “force majeure” clause exempts NOC from its contractual obligations.

However, higher official selling prices now set by Saudi Arabia for buyers of its crude in Asia, the U.S. and Northwest Europe have yet to boost Brent or U.S. oil futures. Some market watchers interpreted the Saudi price move as a sign the price war could be coming to an end that was initiated by the oil producer and some of the other big Gulf producers in the Organization of the Petroleum Exporting Countries (OPEC) to defend their market share. But Saudi Arabia produced slightly more crude in February than in January, according to a Reuters survey. This could be seen as OPEC’s biggest producer continuing to prioritize its market share.

But total OPEC supply fell last month to 29.92-million barrels per day from 30.27 million in January, according to the Reuters survey which is based on shipping data and information from sources at OPEC, oil companies, and consultants. Much of the reduction was on account of lower exports from Iraq’s southern ports due to bad weather. Iraq is OPEC’s second biggest producer.

Another big U.S. stocks build

On the negative front, U.S. crude oil stocks have continued to climb, with the U.S. energy department’s Energy Information Administration (EIA) on March 4 reporting a 10.3-million barrel inventory build in the country’s commercial crude stocks last week. This was more than twice the volume the market had been expecting and marks a 62-million barrels build since the beginning of 2015. U.S. crude oil stocks at the end of last week stood at 444.4 million barrels.

The stock build at the key Cushing, Oklahoma storage hub — the physical delivery point for Nymex crude — was relatively small last week at slightly more than 500,000 barrels. However, at 49.2 million barrels, stocks are 17.1 million barrels above year-ago levels and nearly 50.8 million barrels higher than two years ago. Since the beginning of 2015 alone, some 17 million barrels of crude have been added to the crude inventory at Cushing.

While the U.S. oil rig count continues to decline, the fall last week was once again much less than the prior week. This would suggest the reduced growth in U.S. shale oil production later this year may not be as much as had been hoped. According to Houston-based oilfield services company Baker Hughes Inc., 33 oil rigs were shut down in the U.S. last week compared with 444 the previous week. Analysts pointed to “the improvement” in U.S. oil prices in the past few weeks as contributing to fewer shutdowns.

Indeed, U.S. and Brent oil prices in February showed their first monthly gain since June when the price plummet began. WTI gained 3 percent in February, while Brent’s upswing was much more marked, adding 18 percent for the month.

Gold

Meanwhile, gold initially resisted pressure from a very strong U.S. dollar, managing to hold up above the psychologically key $1,200-a-troy-ounce level in early trade this week. Comex gold futures for April delivery dipped briefly to an intraday low of $1,1194.6 a troy ounce before settling at $1,204.4 March 3. However, Comex April gold finally succumbed to pressure, finishing at $1,196.2 a troy ounce March 5, down $16.9 on last week’s close at $1,213.1.

Ghana supply worries support London cocoa

Cocoa on New York’s ICE Futures U.S. exchange edged lower this week, pressured by the firmer U.S. dollar, while London cocoa held up somewhat better as supply concerns from Ghana, the world’s second biggest cocoa-bean producer, continue to underpin the London market in particular.

New York and London futures prices both were boosted late last week following a report from the International Cocoa Organization (ICCO), which now sees a small global cocoa deficit in the current 2014-2015 season (Oct. 1-Sept. 30).

ICE May cocoa added $36 to settle at $3,016 a tonne Feb. 27 after tapping $3,019 earlier in the day. On London’s ICE Futures Europe exchange, May cocoa finished £18 up at £2,026 a tonne. However, by close on March 5, ICE May cocoa had eased back to $2,996 a tonne but London May cocoa finished at £2,042 a tonne, up £1 on the day.

The ICCO, in its first estimate on Feb. 27 for 2014-2015 (Oct.1-Sept. 30), forecast a global cocoa deficit of 17,000 tonnes for the current cocoa year, compared with an estimated 30,000 tonnes surplus in 2013-2014.

The intergovernmental group is projecting a fall in world production by an estimated 123,000 tonnes to 4.23 million tonnes, and a small drop in global consumption in 2014-2015. It cites expectations of damage from drier-than-average weather patterns in West Africa, which typically accounts for around 70 percent of world cocoa bean supply, as the main reason for lower production. The seasonal dusty Harmattan wind which blows southward from the Sahara across West Africa between December and March was more severe than expected this year, the ICCO said.

The group is projecting Côte d’Ivoire output to come in 26,000 tonnes lower this cocoa season at 1.72 million tonnes while Ghana is expected to see an 87,000-tonne drop to 810,000 tonnes. Côte d’Ivoire and Ghana are respectively the largest and second-largest cocoa bean producers in the world.

Global cocoa grindings are expected to fall 1.7 percent to 4.207 million tonnes in the current season after rising 3.5 percent in 2013-2013. The ICCO expects cocoa processing in Africa, however, to buck the world downtrend, and projects a 2 percent upturn in 2014-2015. Côte d’Ivoire’s cocoa grindings this season are pegged to rise 4 percent to 540,000 tonnes, “reflecting the continuous tendency to expand processing capacity,” the ICCO said. Indeed, the West African country is set to overtake the Netherlands as the world’s top cocoa producer this season.

New York and London cocoa futures have recovered from losses in late January/early February, when front-month ICE cocoa slumped to $2,669 a tonne, marking its lowest level since January 2014.

Arabicas at 13-month low

Arabica coffee, meanwhile, continues to head lower as rainfall in the key growing areas of top producer Brazil pressures prices. Arabica futures on ICE tumbled to a 13-month low early this week before trimming losses on the back of short-covering.

May ICE arabica coffee dipped to $1.2625 a pound March 3 amid a spree of speculator selling before settling at $1.2975 a pound, 8.6 cents down on the day. May ICE arabica shed around 17 percent in the past fortnight alone.

Rainfall in Brazil’s key arabica-producing states of Minas Gerais and São Paulo improved prospects for this year’s crop. Harvesting begins April to May and continues to September.

Raw sugar futures recorded a fresh five-year low this week with the market remaining under pressure from prospects of a large Brazilian crop and a weak Brazilian real, which encourages selling. ICE raw sugar for May delivery dipped to 13.18 cents a pound March 4, its weakest since May 2010, before trimming losses to settle at 13.34 cents, 0.11 cents down on the day. It edged up the following day, supported by some short-covering, to finish 0.1 cent up at 13.44 cents a pound.

May white, or refined, sugar on London’s ICE Futures Europe settled marginally up on the week so far, closing at $372.70 a tonne March 4. It ended last week at $371.80 a tonne.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.